Multi-dimensional signaling with fixed-price repurchase offers

✍ Scribed by William J. McNally

• Book ID: 101288149
• Publisher: John Wiley and Sons
• Year: 1999
• Tongue: English
• Weight: 158 KB
• Volume: 20
• Category: Article
• ISSN: 0143-6570
• DOI: 10.1002/(sici)1099-1468(199905)20:3<131::aid-mde925>3.0.co;2-a

✦ Synopsis

This study presents a signaling model of fixed-price repurchase offers which shows that the proportion repurchased and the premium paid in excess of the stock's full-information value signal both earnings and risk. The model yields four novel implications: high risk firms repurchase smaller proportions at greater premiums, earnings held constant; and high earnings firms make offers for larger proportions at higher prices, but lower premiums, risk held constant. Empirical tests support the implications, even in the presence of alternatives, e.g., free cash flow, optimal leverage, and shareholder heterogeneity.